Artificial intelligence (AI) is impacting, and will eventually impact, nearly every sector and industry, including pharmaceuticals. Companies are already using AI to speed up drug discovery. But how long will it take to have a significant impact on the market? According to some projections, within five years, the U.S. Food and Drug Administration (FDA) will approve the first drug developed using AI. And by 2030, more than 50% of new medicines approved will have been developed with AI assistance.
The companies at the forefront of this transformation could see their profits and stock prices soar. But which is the top stock to consider to cash in on this opportunity? In my view, the answer is Eli Lilly (LLY +1.82%).
Image source: Getty Images.
Eli Lilly is hard at work
The point of AI-driven drug discovery isn't that the technology will magically uncover new miracle drugs. The impact will likely be more modest, but also meaningful. Going from early-stage discovery to human clinical trials to approvals takes years, sometimes over a decade, plus hundreds of millions of dollars of investment and plenty of failures along the way.
If AI can help reduce the failure rate and the time spent across the various phases of development by even 5%, that will cut research and development (R&D) costs, raise margins, boost profits, and lead to lower-cost drugs. Everyone wins. Over the past year, Eli Lilly has accelerated its AI-related efforts. The company is building what will become the pharmaceutical industry's most powerful AI supercomputer, with the assistance of Nvidia (NVDA +2.71%).
NYSE: LLY
Key Data Points
While other companies ahead of the pharmaceutical giant here include smaller biotechs that specialize in AI-driven drug discovery, Eli Lilly has one advantage: It has vast amounts of data from preclinical and clinical trials to train and fine-tune its AI models. Eli Lilly also recently announced it would build an AI innovation lab, still with Nvidia, that will bring together engineers and research scientists to build AI models and accelerate drug discovery and development.
Why the stock is a buy
Eli Lilly is already one of the most innovative companies in the pharmaceutical industry. Over the past five years, it has made breakthroughs in diabetes and weight management with tirzepatide (sold under the brands Mounjaro and Zepbound), in immunology with Ebglyss, and in the tough area of Alzheimer's disease with the approval of Kisunla.
The healthcare giant is riding the wave of the fast-growing market for weight loss drugs that it currently leads, and that should be an important tailwind at least through the end of the decade, especially as it has other pipeline candidates that should earn approval in the next couple of years. Those are already solid reasons to invest in Eli Lilly. The company's work in AI further strengthens its investment thesis.
